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Impairment

In: Business and Management

Submitted By natehoov
Words 1707
Pages 7
Dear Mr. Gabriel,

In response to your inquiry regarding potential adjustments to the carrying value of your corporation’s tangible assets for possible impairments in value and also for possible impairment of value of the Goodwill booked on the corporation’s Balance Sheet, I have researched and concluded the following information and proper disclosures for XYZ Corporation.

Tangible Assets Let’s begin with the tangible assets of the corporation. Over the useful life of the asset, it is necessary to periodically test for impairment. Impairment exists when the carrying value of a long-lived asset exceeds the fair value of the asset and is not recoverable. Various events and changes in circumstances can lead to an impairment, they include but are not limited to; a decrease in fair value of an asset, a change in the manner the asset is used, adverse changes in legal factors or the business climate that affects that value of the asset, and projected continual losses associated with the asset. To measure if there has been impairment on an asset, we must perform a recoverability test. The recoverability test has two steps. The first step is to compare the future net cash flows of the asset to the carrying value (book value) of the asset. If the future net cash flows are more than the carrying value, the asset is not impaired. However, if the future net cash flows are less than the carrying value, then the asset is impaired and the second step of the recoverability test needs to be taken. The second step is to recognize the loss of the impaired asset; which is the amount calculated when subtracting the fair value from the carrying value of the asset. When there is an impairment loss, the loss needs to be recognized in the Income Statement in the continuing operations sections under “Other expense and losses.” Once the asset is impaired and a loss is recognized and...

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